The seafood industry bears a unique pressure in that businesses need to get their product to market quickly or risk having no product at all. But even though the fisherman gets his product to the market with fast turnaround, he still has to wait for payment as a majority of clients pay anywhere from 30 to 60 days. If a client doesn’t pay on time, a fisherman could be facing an even longer wait. In the meantime, the operator has to pay bills and payroll, plus make sure the boat runs and all of the necessary equipment is operational. This gap in payment is where invoice factoring comes in.
Invoice factoring involves a third party advancing money against an outstanding invoice. It frees up cash that’s tied up in an invoice and won’t get paid for at least 30 days. There’s no more waiting for money to come in by a certain date. Now captains are free to take their boats out with the security of knowing all the outstanding bills are settled and everything’s in place for the next run. Following are some of the ways invoice factoring benefits the seafood industry.
No More Slow Payments
The hospitality and grocery industries tend to pay 30 to 60 days on each invoice. These industries are aware of the unique nature of seafood and its limited shelf life, but few are responsive to the need of fast repayment for the supplier. The retailer needs to realize a sale of the product in order to repay the supplier. Taking up to 60 days to repay allows the retailer to maximize its profit of the product and utilize the money. It’s an accepted way of doing business for the seafood industry and why invoice factoring is so important.
Invoice factoring turns an outstanding invoice into usable funds sooner than later. Money shows up within a matter of days instead of months. Building a relationship with a factoring agent results in a steady cash flow as invoices are submitted and settled. There’s no more waiting in dock for money to resupply the boat and pay off employees.
Improved Credit Profile
The less debt a business carries, the better it looks to a lender. It shows financial responsibility on behalf of the operation, something a lender prizes. The benefit of working with a bank is gaining access to larger amounts of capital for a large purchase, such as a new boat or refitting an existing one. Another benefit of having a good credit profile is a lower interest rate on a loan, which lowers the cost of opportunity.
Invoice factoring is beneficial to reducing outstanding debts such as accounts payable, but it also gets the operator the money he needs to make loan payments. On-time repayment of a loan builds a positive credit profile, making it easier to access capital in the future.
No Line of Credit Limits
Some lenders offer a line of credit to fishermen with expectation of repayment when invoices are paid. A line of credit is typically anchored by an asset or other collateral. The value of the collateral dictates the line of credit, with the maximum amount representing a percentage of the value. Someone who owns a boat worth $50,000 may get a line of credit for $10,000, which may not be enough to take care of debts between runs. The line of credit is a hard limit that is rarely increased. And, a line of credit is costly in that interest is charged to the account whenever it’s in use. It creates more debt that needs repaying.
Invoice factoring doesn’t base an advance against the value of a depreciable asset. Rather, it provides funding based on the outstanding value of the invoice. It’s true there are small costs that accrue while the invoice is open, but the costs are similar to that of a cash discount that’s offered to the customer and much less than interest charges.
More Time to Tend to Business
Running a business means keeping up with the paperwork. It’s a time sink, but it needs to get done in order to keep the boat in operation. More time gets lost when someone has to spend time on the phone chasing down promises of payment. In turn, less time is spent physically working on the boat and keeping it ready to go. A boat can’t make money if it’s in dock for no other reason than it’s waiting for the captain to get the boat ready for the next run.
Factoring eliminates the need to spend time looking for money. Cash in hand means that valuable time is spent working on the boat and bringing in more seafood to send to market instead of sitting in the office and keeping everything docked.
Improved Relationships With Crew and Suppliers
A crew is more likely to stay loyal to the operation when they’re paid on a regular basis. Nobody likes to wait for their pay, much less sit idle while waiting for the boat to be readied for the next trip out. Paying wages on time is more than simply providing cash for labor; it shows the crew that the operator is able and willing to reward them properly for their labor. A captain that keeps his crew happy is much less likely to experience a full-scale mutiny of his crew and watch them leave to work on another boat that pays with more regularity.
It’s a similar relationship with suppliers and their role is just as vital as the crew. Suppliers are more likely to extend credit to an operation that pays its debts on time or can prove that it’s capable of paying for its purchase outright. A fishing boat is more profitable when it can get back out to the sea sooner because it’s been restocked quickly.
Invoice factoring provides a number of benefits to the seafood industry. It’s flexible, quick, and reliable, and it’s geared towards the unique pressures that operators face. Contact us at FSW Funding today to learn more about how we can help you turn your outstanding invoices into cash.